Government keen to sell stake in Malaysia Airlines, says CEO
The Associated Press
Published: February 18, 2008
SINGAPORE: The Malaysian government is keen to sell a stake in Malaysia Airlines to ensure the company remain globally competitive in an industry which is fast consolidating, the company's chief executive said Monday.

If the government decides to offload some or all of its 69 percent stake in the national carrier, it could be offered to a strategic partner or to the market, said Chief Executive Idris Jala.

"I certainly believe that the government is very keen (to sell a stake). It'll do it for the right price at the right time," Idris told reporters on the sideline of a regional aviation conference here.

At the same time, he said the flag carrier is exploring the possibility of acquiring stakes in other airlines although this is still in the early stage.

He said passenger demand is expected to fall short of the industry's total capacity over the next five years, which will hurt airlines' profitability and push the formation of new alliances.

"We are looking at opportunities in Asia-Pacific region," Idris said. "I believe mergers and acquisitions are very efficient. It will reduce costs and we will be able to offer lower fares."

Last month, the carrier unveiled a five-year growth plan which calls for opening up more routes in Southeast Asia, China and India, fleet expansion and lower fares to boost its annual profit to as much as 3 billion ringgit (US$930 million; €634 million) by 2012.

Idris said the airline also aims to save as much as 1 billion ringgit (US$310 million; €211 million) this year through cost-cutting in procurement, maintenance and other related services.

"Our operations costs are up because of fuel prices and also wages are going up, we want to take out bad costs," he said.

The carrier rebounded from deep losses in 2005 and 2006 with a record profit of 610 million ringgit (US$189 million; €129 million) in the nine months to September 2007 following a successful revamp.

On fleet expansion, Idris said the carrier will likely decide by April whether to proceed with its order for six superjumbo A380s following a delay in delivery due to production problems.

"I'm happy about the latest development with Airbus. We are reaching a win-win situation," he said.

Last month, company officials have indicated the airline may stick to its plan to acquire up to 110 new planes, with a final decision to be made after the current quarter.
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MALAYSIA Airlines has launched its Travel Insurance, which will protect passengers from trip cancellation, loss of luggage and overseas medical costs.

The insurance package is offered in partnership with with Mondial Assistance, a leader in travel insurance and assistance, and Etiqa Insurance.

It is available for flights departing Malaysia, and will be extended to include more than 10 countries in the coming months, said the national carrier in a statement.

Malaysia Airlines said domestic and international travel insurance plans are offered up to 30 days and 180 days of coverage respectively in addition to 24-hour worldwide emergency medical and travel assistance, with prices starting from RM15.

The airline said customers and the general public can purchase the insurance online at www.malaysiaairlines.com. — Bernama

Govt open to partnership in MAS
19-02-2008
by Gan Yen Kuan
Email us your feedback at fd@bizedge.com

SINGAPORE: The government is open to the possibility of Malaysian Airline System Bhd (MAS) establishing a strategic partnership with another airline that may result in the dilution of its stake in the national carrier, said MAS managing director and chief executive officer Datuk Seri Idris Jala.

He said the government was keen on the right opportunity to reduce its stake in MAS without relinquishing control in the carrier, as merger and consolidation in the global airline industry had become inevitable amid industry liberalisation.

Jala said overcapacity was anticipated with more aircraft coming onstream beginning this year, and airlines worldwide would inevitably have to consolidate to ease the excess capacity for better yields, apart from reinventing their business models.

By merger and consolidation, Jala meant it might involve sale and acquisition of equity interests or partnerships in various areas such as in the information technology, and maintenance, repair and overhaul (MRO) segments.

Citing the merger of Air France and Netherlands-based KLM as an example, he said the two airlines had been put in a much stronger position after the merger that synergised both airlines’ values.

“I think the first step in making alliances is (by joining) the global airline alliances such as SkyTeam. It will also involve (stake sale and acquisition). In our discussions with them (the government), they are certainly open to the idea of dilution (of stake in MAS).

“I certainly believe that the government is very keen on the right price and the right opportunity to dilute its stake,” he told reporters here yesterday before the award presentation ceremony of the Air Transport World’s (ATW) 2008 Airline Industry Achievement Awards.

Apart from a golden share, the government via its investment arm Khazanah Nasional Bhd, holds a 69% stake in MAS.

Jala said Khazanah would likely maintain its controlling stake even if it decided to sell down. He added that he was not in a position to say to what extent Khazanah would cut its stake and when that would happen.

Jala said MAS itself would also look at opportunities in acquiring loss-making airlines in the next five years “when opportunities arise”, adding that financing would not be a major problem.

This is despite MAS having to focus on the implementation of its recently unveiled Business Transformation Plan (BTP2), under which Jala and his team have set an ambitious target of achieving an annual profit of RM1.5 billion by 2012 and to transform the airline into a “five-star value carrier.”

Asked if MAS would collaborate with low-cost carriers such as AirAsia Bhd, he said: “We are always open to opportunity when it comes. You must never say never.”

Meanwhile, at the ATW 2008 Airline Industry Achievement Awards, MAS was awarded the Phoenix Award in recognition of its “remarkable turnaround” and “life-changing transformation”.

ATW is the leading monthly magazine covering the global airline industry. Its editorial director and associate publisher Perry Flint said: “In less than two years, Malaysia Airlines has turned itself completely around. A company that was near to bankruptcy in early 2006 is now enjoying the best year in its history.

“This remarkable about-face is a testament to the hard work and dedication of the airline’s staff and the vision of CEO and managing director, Idris Jala, whose Business Turnaround Plan became Malaysia’s blueprint for success.”

For the first nine months of 2007, MAS posted a net profit of RM610 million, the highest profit in its 60-year history. It will announce its full-year 2007 results on Feb 25.

KUALA LUMPUR: Malaysia Airlines will limit the weight of each check-in luggage to 32kg for all classes of travel beginning next month.

Customers whose check-in luggage exceeds the stipulated weight limit will be required to repack their luggage into smaller units before they can check in, the airline said in a statement yesterday.

The new rule is being introduced to reduce manual handling risks to employees and raise occupational health levels, the national carrier said.

“This new safety measure will reduce the exposure of our teams to manual handling injuries as a result of lifting extremely heavy luggage during check-in and at the baggage-handling area,” said the airline’s senior general manager of airport operations Yusop Jaridi.

The weight limit relates only to single items of luggage and does not affect passengers’ overall baggage allowance. – Bernama

KUALA LUMPUR (Thomson Financial) - Malaysian Airline System (MAS) said Monday it returned to profit in 2007 and even managed to exceed all its financial targets after reporting a net loss the previous year.

The national airline said fourth-quarter net profit rose to 242 million ringgit from 122 million a year earlier on improved yields and strong passenger demand.

Full-year net profit jumped to 851 million ringgit from a net loss of 136 million ringgit in 2006.

Consensus estimates had put MAS' net profit at 592 million ringgit for 2007.

For the full year, revenue was up 13 percent at 15.3 billion ringgit on strong passenger demand and sustained yield improvements.

Operating profit improved to 798 million ringgit from a loss of 296 million ringgit previously, on a robust 71.5 percent passenger load factor and yield which rose 12 percent to 27 sen per revenue passenger kilometer.

'We have come a long way from our 1.3 billion ringgit losses and near bankruptcy in 2005 to achieve this record profit in just two years,'' the company said in a statement. 'We also have money in the bank, a healthy cash position of 5.3 billion ringgit which we will use to grow MAS.''

'We will utilize the cash surplus (of 5.3 billion ringgit) for aircraft purchases. Quite a bit of the cash will be set aside for that, and some of the money will be used to automate a lot of our processes and to improve our customer services and to reduce costs,'' said chief financial officer Tengku Azmil.

Azmil said the airline is also in the midst of formulating a new dividend policy but he ruled out the possibility of paying a one-off cash return.

'I can't give you the details until we have finalized the numbers. We will look at a very holistic capital management policy.''

The dividend policy will be announced sometime this year.

'MAS is well positioned to grow organically and when the (M&A) opportunity arises, we will be able to grab the occasion too,'' said Idris Jala, chief executive of MAS, when asked about the airline's merger and acquisition activities.

Recent media reports have said the government is open to the idea of cutting its stake in the company to enable MAS to establish a strategic partnership with other airlines.

Idris said he expects challenging times ahead despite the swing to profit in 2007.

'With the record profits, we are not declaring victory. The world is going to get relatively hard in the next few years (and) with a tough and competitive environment, we could lose a lot of money.''

He said barring any exceptional circumstances, the airline aspires to achieve its stretch profit target of 1 billion ringgit in 2008.

The outlook for the cargo business looks good despite the 2 percent drop in cargo revenue in the fourth quarter due to stiff competition, said Idris.

The national airline's cargo unit, MasKargo, has entered into a global partnership with the world's largest freight forwarder, DHL Global Forward, and with DB Schenker.

The MAS chief said the potential revenue of the two partnerships can surpass 350 million ringgit annually.

On the impact of high oil prices, Idris said an increase of 1-5 US dollars per barrel will have a 50-250 million ringgit impact on its bottom line.

'MAS will diligently mitigate the impact via an increase in fuel surcharge hedging and fuel efficiency,'' he said.

On the status of MAS' orders for six Airbus A380 aircraft, chief financial officer Azmil said talks are in their final stages but nothing has been confirmed. MAS has asked for compensation for delays in the delivery of the aircraft.

'We are continuing our discussion with Airbus. We have made some decent progress over the last few weeks but we are still talking and we have not finalized anything yet,'' said Azmil.

Gald to hear that! However, if you pay attention to their financial report, we can see that the selling of aircraft and properties contribute huge amount of profits. That means that MAS still have lots more to do before the aviation sector in ASEAN is fully liberated.

Managing director and chief executive officer Datuk Seri Idris Jala said the fourth quarter marked the “sixth consecutive quarter of sustained profitability,” which began in the third quarter of financial year 2006.

Following the turnaround, MAS proposed a final dividend of 2.5 sen per share, the first dividend payout since the 2004/05 financial year. The proposed dividend of RM41mil will be paid at a date to be determined and is subject to shareholders' approval at an AGM scheduled for June.

Datuk Seri Idris Jala (left) and Datuk Tengku Azmil Zahruddin
“(In addition to the dividend), the company has approved bonuses which will be announced in March,” Jala told a media briefing when announcing the airline's results yesterday.

For the full year ended Dec 31 (FY07), the national carrier's soaring net profit of RM851.42mil was the highest ever, compared with losses of RM136.43mil in FY06.

MAS' previous record net profit was RM461mil achieved in FY04.

When the airline announced its business turnaround plan in late February 2006, it had targeted net profit of RM50mil for FY07. Jala said the actual net profit for FY07 was “17 times the target.”

For FY07, strong passenger demand and sustained yield improvements enhanced revenue by 13% to RM15.29bil from RM13.5bil a year earlier.

Operating profit climbed to RM798mil from a loss of RM296mil previously helped by a robust passenger load factor of 71.5% and yield that rose 12% to 27 sen per revenue passenger kilometre.

MAS flew 14 million passengers in FY07.

The airline also reduced costs by over RM900mil in FY07 against a year earlier. Domestic cost was higher at RM848mil in FY07 compared with RM623mil in FY06 as the latter was incurred for only five months as opposed to the full-year cost in 2007.

MAS overcame its cash crisis as it now had RM5.26bil for growth.

Executive director and chief financial officer Datuk Tengku Azmil Zahruddin said the company would use the cash for aircraft purchases, as “quite a bit of cash” would be set aside for that.

“There are a lot of things that we are planning to do; to automate a lot of our processes to improve our customer service and to reduce our operational costs,” he added.

On whether the cash would be used to pursue mergers and acquisitions, Jala said the airline was in a comfortable position and was ready to do pursue this avenue “as soon as the opportunity arrives.”

With regard to the airline's dividend policy, Azmil said the company was looking at it from scratch.

“The capital management policy will include a new dividend policy. I cannot give you the details until we finalise the numbers but we want to continue to make profits and reward shareholders. We are not planning a one-off special dividend,” he added.

The dividend policy is expected to be unveiled later in the year.

Jala said the company would continue to intensify efforts to generate and sustain profitability.

MAS recently secured two three-year contracts with the Armed Forces of Malaysia, which guarantee a minimum potential earning of RM103mil in total, and is working on finalising the maintenance, repair and overhaul joint venture with Qantas.

Besides that, MASkargo entered into global partnerships with DHL Global Forwarding and DB Schenker. Jala said the potential value of the two partnerships could exceed RM350mil yearly.

As for the effect of high fuel prices, an increase of US$1 to US$5 per barrel will cost the company RM50mil to RM250mil.

MALAYSIAN Airline System Bhd (MAS) financial results for the year ended Dec 31, 2007 beat industry expectations, confirming its turnaround and showing that the airline is well and truly profit making, said analysts.

Aseambankers Research said MAS’ 2007 core net profit of RM830.2 million was 8.9% above its expectations and 47.6% above consensus forecasts, driven by better revenues and earnings before interest and tax margins.

It said the new contracts MAS secured from the Royal Malaysian Army and express courier firm DHL would further boost revenue by up to RM433 million annually.

Aseambankers Research reiterated its buy recommendation on MAS at RM4.38 and raised its target price to RM6.15 from RM6, and said it continued to like the airline for its deep and sustained earnings growth being realised.

“At 9.5 times 2009 fully diluted earnings per share and target price RM6.15, MAS is at a slight discount to regional peers. We raised 2008 and 2009 earnings by 8.4% and 6.6% respectively, with a further upside bias.”

“We have imputed US$90 (RM293.40) per barrel crude fuel cost in 2008, whilst MAS’ hedge and current prices translate into US$94,” it said.

Aseambankers Research said MAS’ 2007 core net profit came from more efficient and market-driven operations and pricing, and highlighted that although passenger capacity contracted 4.8% year-on-year, MAS’ 12.6% increase in revenue and cost controls proved to be decisive.

“MAS also generated net cash of about RM2.7 billion in 2007 (excluding drawdown of borrowings), allowing it to declare a surprise dividend of 2.5 sen per share, putting MAS closer in line with regional peers,” it said.

On the contracts the airline secured, Aseambankers Research said these contracts represent incremental revenues on routes and frequencies that MAS already operates.

“Our first cut estimate is that MAS may chalk up RM150 million in revenue in 2008, before rising to as much as RM433 million in 2010.”

“This assumes MAS gradually and carefully takes on business from DHL, given the recent history of DHL’s local cargo airline partner recognising losses from its long-haul tie-up with DHL,” it said.

The research house said it had not imputed the DHL contract into its forecasts pending further details.

Meanwhile, OSK Investment Research maintained its buy recommendation on MAS at RM4.38 with a target price of RM6.40 and said that MAS would be one of the survivors in the upcoming challenging aviation environment, provided the key management team is retained.

“If the shareholders retain the current management team, we believe MAS can indeed achieve its base case business turnaround plan 2 (BTP2) target of RM1.5 billion net profit by 2010,” it said.

The research house said MAS net profit for 2007 confirmed the airline’s turnaround based on its strategy of yield enhancement and cost control.

OSK Research said the impact from the liberation of the aviation sector would not be a major one on MAS, explaining that while MAS had reduced its capacity on the KL-Singapore route by 30% since it was opened to low cost carriers in February, this was offset by MAS’ load factor increasing by 10 percentage points and constant yields.

“Going forward, MAS expects minimal impact to profitability. This should help its shareholders breathe a sigh of relief as a major concern had been the potential negative impact of impending liberalisation on MAS’ Asean routes.”

“Now, we need to watch out for how its China routes may be impacted by AirAsia X,” it said.

The national airline will get 43 per cent of its fuel this year at US$89 for a barrel of crude

MALAYSIAN Airline System Bhd (MAS), the nation's largest carrier, raised fuel hedging to limit the increase in the company's biggest expense as the price of crude oil surged to a record this week.

The airline will get 43 per cent of its fuel this year at the rate of US$89 (RM281) for a barrel of crude, chief executive officer Datuk Idris Jala said in an e-mailed statement to Bloomberg questions. In November, the airline had hedged 29 per cent of its fuel needs at US$69 (RM218) a barrel of crude.

Crude oil surged to a record US$110.20 (RM348) a barrel yesterday, while the price of jet fuel increased 39 per cent in the past six months. The airline, which aims to quadruple profit in five years, also imposes a fuel surcharge.

Fuel "is a big challenge for the airline industry as the increase will unfavourably impact the airlines' financial position," Idris said.

GUANGZHOU: Malaysia Airlines expects additional revenue of RM70mil to RM100mil per annum, starting next year, from its global hub and spoke network initiatives.

Managing director Datuk Seri Idris Jala said the group would see part of the additional revenue this year.

“The optimal contribution will start next year as we are now in the process of enhancing our network and promoting the cross-selling of services between airlines that we have code-share agreements with,” he said.

Jala said this before the formalisation ceremony of a code-share agreement between MAS and China Southern Airlines (CSA) yesterday.

He said the volume of passengers in the network with CSA had doubled since its started last November.

From this code-share arrangement, MAS can now offer services to 90 destinations in China from Guangzhou and 38 destinations in China from Beijing using CSA.

“We are leveraging on the strong growth of Chinese outbound travellers and expect to see a 7% increase in the number of passengers for our China-Malaysia flights this year,” he said.

CSA chairman Liu Shao Yong said the company had also seen a 10% increase in sales via 300,000 passengers since the code sharing with MAS in November.

Jala also said that MAS planned to sign two more code-share agreements with Turkish Airlines in Turkey and Jet Airways in India by June.

“The agreement with Turkish Airlines is expected to fly beyond Istanbul to the rest of central Europe. Currently, we are discussing some technical issues with them.

“Similarly, the code sharing with Jet Airways promises a large network in the Indian continent,” he said.

With the inclusion of CSA, MAS had signed seven code-share agreements with airlines globally.

Preference will be given to Penerbangan Malaysia Bhd, but if MAS gets better lease rates from other lessors, then it will go with the latter, says MAS managing director

MALAYSIA Airlines (MAS) said it will consider leasing aircraft from other lessors, rather than Penerbangan Malaysia Bhd (PMB), to replace part of its current fleet, if PMB's lease rates are less favourable than the market's.

"Preference will of course be given to PMB if it were to give us the best rates. But if PMB's rates are not good and we get better from other lessors, then we will go with the latter ... it is a pure commercial deal," MAS managing director Datuk Seri Idris Jala told reporters in China recently.

He said parent company PMB must make sure that its lease rates are good and as competitive as the market's.

"We must keep it on its toes. There is no free ride, and it knows that too," said Idris.

According to its website, the national carrier has a fleet of 111 airplanes in use, 90 per cent of which are leased from PMB.

MAS first announced plans to undergo a fleet replacement exercise in 2007.

Even though the carrier had announced plans to submit request for proposals (RFP) for up to 55 wide-body and 55 narrow-body aircraft to aircraft manufacturers last year, the carrier has since been reviewing the type and size of fleet it would require.

"We have had many discussions and I'm not shy to say that we spent a lot of time on this, and the reason is that the single largest decision any CEO will ever make is the purchase of aircraft. As such, we should not take this matter lightly," Idris said.

He said a detailed analysis on the type and size of fleet it will need has been extremely painstaking, but necessary to the success of the programme.

"I can guarantee with the work that we have been doing that when we make the announcement, we have done the best that we possibly can," Idris said.

He said the national carrier would be looking to both owning and leasing aircraft.

Industry talk has it that MAS may have to buy the A320s from budget airline AirAsia Bhd if it does choose the plane in their narrow-body fleet replacement exercise. This is to ensure that MAS gets the planes early.

MAS: Full benefit from hub-and-spoke from 2009
From Presenna Nambiar
Published: 2008/03/21

The RM70 million-RM100 million contribution yearly will come in full force once MAS consolidates its network and cross-selling between airlines accelerates, says MAS managing director

GUANGZHOU: Malaysia Airlines (MAS) said its enhanced global hub-and-spoke network is expected to produce RM70 million to RM100 million per year in additional revenue from next year.

"We will see some contributions this year, but the full benefit of the hub-and-spoke programme will only be felt next year," MAS managing director Datuk Seri Idris Jala told Malaysian reporters here yesterday.

He said the contribution will come in full force once the national carrier consolidates its network and cross-selling between airlines accelerates.

He was speaking before the formalisation ceremony of a code-share agreement between MAS and China Southern Airlines, the largest airline in China.

"We will leverage on the strong growth of Chinese outbound travellers, and expect to see a seven per cent increase in the number of passengers for our China-Malaysia flights," Idris said.

MAS saw the number of passengers on the flights double since the implementation of the code-share arrangement in November last year.

The code-share arrangement between the two airlines now allows MAS passengers to travel to 90 destinations in China from Guangzhou and 38 from Beijing on China Southern.

China Southern chairman Liu Shao Yong said the airline has transported 300,000 passengers and seen a 10 per cent increase in sales from the code-sharing with MAS since November.

Meanwhile, MAS expects to sign two more code-share agreements, with Turkish Airlines in Turkey and Jet Airways in India, in the second quarter of this year.

"With Turkish Airlines, we are looking at a hub-and-spoke arrangement that goes beyond Istanbul to the rest of central Europe. There are some technical issues that we are dealing with now," Idris said.

The two agreements are seen as vital pieces to MAS' hub-and-spoke jigsaw puzzle due to their extensive network.

Idris said the weakest link in the hub-and-spoke network at present is the code-share arrangement with the Bahrain-based Gulf Air.

"Gulf Air currently has limited spokes and we are thinking of strategies to improve the network."

On its six A380 superjumbo order and fleet expansion plans, Idris said that MAS will make an announcement next month.

He did not say whether MAS might scrap its order for the A380, which is two years late in delivery.

Airbus had announced delays in delivery because of wiring complications.

The Malaysian airline does not discount the possibility of mergers and acquisitions with low-cost carriers, including AirAsia

SINGAPORE: Malaysia Airlines (MAS) has expressed interest in mergers and acquisitions (M&A) with other airlines, especially Asia Pacific carriers, to grow the company within five years.

And it does not discount the possibility of doing so with low-cost carriers (LCCs), including AirAsia.

Managing director Datuk Seri Idris Jala said M&A opportunities should not only be confined to share acquisitions but may include other forms of alliances or collaborations, such as those in the maintenance, repair and overhaul (MRO) divisions.

MAS' recent MRO joint venture with Qantas is one example of this collaboration, and Idris is confident that opportunities exist with other carriers.

"We are open to all M&A opportunities. It is still early and we are now occupied with our second business transformation plan (BTP2). However, if the opportunity arises, we are ready for it. Financing will not be a problem as we have various ways to do so.

"As for possible alliance and collaboration with AirAsia, we are open to it. I believe the best way to collaborate is to compete and collaborate. I think competition between MAS and AirAsia is good as it drives both parties to continue to improve themselves.

"We are also interested in collaboration. Any opportunity that is good, we will look at it," he told reporters before accepting Air Transport World's Phoenix Award here yesterday.

Idris said apart from being part of its BTP2, M&A and alliances will also help MAS prepare for possible overcapacity in the region in the future, resulting from huge aircraft orders among regional airlines.

The more liberalised aviation landscape in the region is also seen as another reason for airlines to look at various forms of collabora-tion and alliances.

He said overcapacity would result in declining margins for airlines and may even cause some to go bankrupt.

"There are possibilities of overcapacity in the region and some airlines may even face financial difficulties. When this happens, we will be alive and kicking and will be in a good position to take up the M&A, alliance and collaboration opportunities," he said.

In line with this, Idris said, major shareholder Khazanah Nasional has agreed to dilute its current stakeholding of 69 per cent in the airline.

"They are open to the idea of diluting ... but that is a question you should ask them. I believe the government is keen for the right price and the right opportunity to dilute. I think they will do it gradually."

On whether the government will reduce its stake via open market or to strategic partners, he said that depends on which choice would give the most value.

"Whatever it is, even if the government reduces its stake, they will remain a major shareholder. They don't need a 69 per cent stake in the airline to be a major stakeholder," he added.

On the development of its six A380s orders, Idris said the airline is happy with the latest round of discussions with airframe maker Airbus.

"I can't reveal the details. All I can say is that we are nearing the point of reaching a win-win deal for both parties. We hope to conclude everything by end of March or April," he added.

MAS was awarded the Phoenix Award in recognition of its remarkable turnaround, having transformed itself from a loss-making into profitable entity within just nine months.